Australia still subsidising fossil fuels at rate of $1,712 per person a year

In a week punctuated by heavy criticism of financial support for renewable energy in Australia, a report from the International Monetary Fund has reminded us that the age of entitlement for fossil fuels never really ended, with subsidies to the sector averaging at around $US1,000 a year for every citizen living in the G20 group of the world’s leading economies.

All up, the report projects global energy subsidies at $US5.3 trillion in 2015, or 6.5 per cent of total GDP – most of which, it says, arises from countries setting energy taxes below levels that fully reflect the environmental and health damage associated with energy consumption.

“This trend suggests that energy subsidy reform is as urgent as ever, in particular to tackle the un-priced externalities from energy consumption,” the report says.

The report finds that the bulk of energy subsidies in most countries are due to undercharging for domestic environmental damage, including local air pollution – especially in countries with high coal use and high population exposure to emissions – and broader externalities from vehicle use like traffic congestion and accidents.

“In many top subsidisers in percent of GDP and in per capita terms, these also reflect the setting of domestic energy prices below their supply cost.”

The rest of the IMF estimates for 2015 come from payments, tax breaks and cut-price fuel.

The IMF, which published a global estimate – $5.3 trillion a year – of fossil fuel subsidies in May, calculates that ending fossil fuel subsidies would slash global carbon emissions by 20 per cent.

It has also estimated that this would lead to a 50 per cent cut in premature deaths caused by air pollution, while also being an economic “game-changer” for many countries, freeing up much needed funds.

For advanced economies, like Australia, the IMF estimates eradicating fossil fuel subsidisation would gain enough revenue to halve corporate income tax or cover one quarter of public health spending (Chart 2).

“In emerging economies, the revenue is worth double their corporate income tax revenues or public health spending. In low-income countries, it is about one and half times corporate income tax revenues or public health spending,” the report says.

“The [new] figures reveal the true extent to which individual countries are subsidising pollution from fossil fuels,” said Lord Nicholas Stern, an eminent economist at the London School of Economics. “The failure to reflect the real costs of fossil fuels in prices and policies means that the lives and livelihoods of billions of people around the world are being threatened by climate change and local air pollution.”

“In particular, these figures reveal that the G20 countries are wasting trillions of dollars each year on subsidies for fossil fuel pollution,” Stern said. “It is time for the G20 to recognise that the extent of subsidies is far greater than has been previously understood, and to honour their commitment.”

51 Comments

Mike Dill 4 years ago

In the US we pay an additional subsidy for fossil fuels not recognized here, as our military expenditures go to supporting the governments that supply us the oil and protecting the supplies, even if it means that we are fighting some wars in the process. So the US subsidy is at least twice as high when you add that in.

Reality Bites 4 years ago

What a load of rubbish. Listen well….there is no fossil fuel subsidy in Australia! What the figure represents is a Fuel Tax Rebate for a tax that was paid by the miners. Not only coal miners can claim the rebate, but farmers and all other off road users of diesel fuel. The Fuel Tax was levied to assist funding large road projects. If you have an off road use then why should you pay the tax? That figure includes the rebate for all users, which includes farmers, iron ore miners etc so it is a total beat-up of the fossil fuel sector. Another propaganda piece by Renew Economy.

Listen Well. The fossil fuel rebate doesn’t come close to $1,712 a year. It’s part of it, but just a minor one.

Reality Bites 4 years ago

Oh yes I forgot about the claim for damage to the environment, which is like saying that we are subsidising the sale of alcohol because we are not charging the true cost of alcohol abuse on society. How about working out what the coal miners actually pay in FTC, which if the article by Sophie Vorrath on 29 April 2015 is correct, should be about 2 x $366m, so about $720m. Therefore the figure claimed is highly inflated. In addition it is not a subsidy but a rebate of a tax already paid. It is claimable by anybody who uses diesel off road.

Clayton Drury 4 years ago

Yes, we are subsidising the sale of alcohol. As you state, the externalities are not fully accounted for in the price of a bottle of wine. Any government rebate is a subsidy. All government rebates are subsidies. It is money that would otherwise go to the government flowing back to a private enterprise or individual. Yes, farmers also claim the rebate. They get a subsidy too. We should not be providing financial incentives to companies that pollute our environment and that are directly contributing to climate change and all of the death, destruction and cost that go with it. These companies are not just taking the money, they are taking the money and using it to fund disinformation and influence governments so that they can continue polluting at the tax-payers’ expense. It is wrong and completely unjustifiable.

Reality Bites 4 years ago

Stop driving your car then and don’t take power from the network. Live in a wigwam.

Barri Mundee 4 years ago

That sort of “go live in a cave” argument is the sort of BS we get from FF shills pretending they agree with the science.

Coley 4 years ago

Aye, the likes of these trolls pop up on any environmental sites, but any filters would give them ammunition to “cry unfair discrimination”

wideEyedPupil 4 years ago

mature response.

Colin Nicholson 4 years ago

rb alcopops anybody?

nakedChimp 4 years ago

the big chunks are climate warming costs, air pollution and other externals which so far are unaccounted for and the piece was made by the IMF, not RE. L2R before calling other people out on stuff.

Barri Mundee 4 years ago

You may have a point about certain subsidies eg the diesel fuel rebate but the biggest subsidy is the free kick polluters such as coal mines and fossil fuel power stations is the lack of a price on their emissions.

Damien van Hoogen van 4 years ago

Diesel fuel rebate goes into general revenue stream and has for a few decades – it no longer pays for roads. Why should farmers/miners pay the full price you ask – because of the cardinal rule of tax: Tax Bad, don’t tax good. Agreed though that its a bit misleading – whilst it’s not going direcly to fossil fuel companies it’s still (unfairly) making diesel a more attractive product to use.

Coley 4 years ago

Not a chance,the red diesel tax break was designed to give agricultural users IE farmers a break, it was never intended to give heavy industry users the same advantages, time to draw the distinction.

Reality Bites 4 years ago

That is completely untrue, why not look at the history: http://archive.treasury.gov.au/documents/986/HTML/docshell.asp?URL=fuel_tax_credit_revised020605-01.asp. The Australian Fuel Tax Credits Scheme came into effect on 1 July 2008. Under these changes, all off-road business use of fuel became eligible for a rebate. In other words, businesses that do not run large vehicle fleets but consume large amounts of fuel in business processes (such as manufacturing, construction, plant operations) became eligible for a fuel tax credit. Just more misinformation that the anti coal groups keep repeating until the misinformed think its true!

wideEyedPupil 3 years ago

just because FF lobbyists managed to ride on the coat tails of farmers doesn’t mean they made the political running for a diesel rebate.

link me to one article that has the LNC or ALP citing the mining industry as a reason we need a diesel rebate before it was introduced and you’d have some credibility.

pointing to legislation we all acknowledge exists and are in fact discussing reflects poorly on your comprehension skills.

Reality Bites 3 years ago

No need to point to anything, the farmers represent 2/5ths of nothing in the FTC, whereas mining companies represents the vast majority. It is ridiculous to try and say that the Libs and ALP only supported this program for the farmers and miners are riding on the coat tails. (By LNC I assume you meant LNP and by the way LNP only exists in QLD)

wideEyedPupil 4 years ago

By your argument I should not have to pay my council rates because I rarely put my garbage bins out. I’ve optimised my waste stream by not buying packaged food. I compost most waste I generate except for black water which council has no role in. Most people think local councils collect garbage, mow ovals and keep the library open so I should just ask for my rebate. It’s a stupid logic for stupid people in a state of cognitive dissonance about Catastrophic Climate Change.

Beat Odermatt 4 years ago

Yes, the figure is rubbish. It does NOT contain the cost of rehabilitation of mines and power stations which may be considerable higher than the current value of all coal mines and coal fired power stations. These expenditures are passed on to future generations. I am sure we will soon see coal mines and power stations sold for as dollar or a pepper corn to escape rehabilitation expenditures.

nakedChimp 4 years ago

let’s face it, that cost will be socialized, no matter how often and clearly it is being pointed out. Man how I love this current monopolistic market stuff.. profits are privatized and any costs are to be burdened by the public. At least 2000 years of written history and we still aren’t much better..

Beat Odermatt 4 years ago

I could not agree more. I worked as an Environmental Scientist for coal mines in Queensland and South Australia and I am sure that the funds collected will never ever come close to covering the cost of proper rehabilitation. Our grandchildren will inherit the legacy of burnt resources and rehabilitation costs.

wideEyedPupil 4 years ago

but they were making good for humanity!

MaxG 4 years ago

Spot on; I doubt many understand what you’re saying. Otherwise we would have a revolution… not in this country though 🙂

Reality Bites 4 years ago

Ever heard of Rehab bonds? Each State Government holds billions of dollars of bonds, which are issued by Australian licensed banks. Miners and power stations must by law rehabilitate the mine area so your assertion is also rubbish. A good example is the Isaac Plains Coal mine being sold by Vale for $1.00 to Stanmore. The Rehab bonds stay in place and either must be replaced by Stanmore or Vale do not get them back, therefore the estimated cost of rehabilitation is covered. So much misinformation it amazes me!

David Osmond 4 years ago

As this article suggests, the bonds are likely to far smaller than what is needed for rehabilitation.

Yes, I am well aware . I did work after all for 20 years as an Environmental Scientist in coal mines in Queensland and South Australia. The funds will pay for some of the cosmetic rehabilitation but will never cover the real costs coming from spontaneous combustion, acid drainage etc. I recall that the privatisation of the Leigh Creek and Port August operation went ahead without the establishment of such a fund to maximise the sales price.

wideEyedPupil 4 years ago

Imagine the size of the bonds deep water oil rigs should be surrendering prior to exploration even. And then check the reality of Deepwater Horizon oil ‘spill’ and how much protection was in the Bond system there. Even at a few billion dollars non-bonded payout Obama pretty much let BP and Halibruton et al off. The restoration will never be done and beside killing an entire fisheries industry, the ecological and eco-system health effects will be felt for decades, possibly until the next such spill.

Les Johnston 4 years ago

The diesel fuel rebate issue becomes clouded because road costs are underfunded by the fuel excise. The externalities arising from road use plus direct and indirect cost of road construction and maintenance are not covered by the fuel excise. These are covered by other taxes issued by Government. There is no true costing and accounting of the mess created by the muddled Government practice of taxation on fossil fuels. One cost that is not being levied on mining is that of the resource value. This is yet another subsidy transfer to “support” the mining industry. Am yet to see groundwater rehabilitation after mining extraction is completed.

Reality Bites 4 years ago

So the old muddled look over there trick to distract attention from the fallacy of the comment. One cost that is not being levied on mining is that of the resource value. Ever heard of Royalties? In 2014 coal alone paid $1,946.6m to the QLD government.

wideEyedPupil 4 years ago

And what was the profit margin on those assets sold forever, does that not more correctly reflect their value?

Les Johnston 4 years ago

Please note that Royalties are a form of resource tax. They are not levied on the basis of the economic value of the resource carried into the future. States compete with each other to have lower Royalties. How can Royalties therefore be seen to be a economic valuation?

Davin Eastley 4 years ago

This article is garbage. “The rest of the IMF estimates for 2015 come from payments, tax breaks and cut-price fuel.” NO! NO! NO! The latter two of those are NOT subsidies. This is dishonest journalism in the extreme.

“For advanced economies, like Australia, the IMF estimates eradicating fossil fuel subsidisation would gain enough revenue to halve corporate income tax or cover one quarter of public health spending ”

What the actual…!?

If an item is on sale at the supermarket and I buy it at that price rather than full price, I don’t gain revenue as a result of that. I incur a cost but a lesser one than I otherwise would’ve done!

Not sure whether we have failed economics 101, but clearly you think that the economic experts at the International Monetary Fund, the World Bank, the International Energy Agency, the London School of Economics, MIT, etc etc, etc etc etc have. It is well recognised that commodities such as oil and coal sold domestically at massive discount to export prices is counted as a subsidy. If you don’t like that, rail at them, rail at economics 101, invent a new economic system!

Davin Eastley 4 years ago

Journalist, not the IMF, EIA, etc etc. I’m a mining/energy investor and an active libertarian. I understand these all well. Even if you count them under the one blanket of subsidies, there’s a moral distinction between a tax break and a handout. One is keeping more of their own money, the other is receiving taxpayer money. It’s dishonest to pretend there’s no distinction, even if you include them all under the one label.

I read it as mining/energy investor and an active librarian. was thinking what, knowledge for knowledge sake and an investor?! haha.

Damien van Hoogen van 4 years ago

How is it their own money? if it was to be taxed then its the public’s money. How about if we took it as tax and then refunded it? Does that thought experiment help clarify things….

Davin Eastley 4 years ago

Well, what about legitimate tax minimisations?

Coley 4 years ago

Hope you aren’t into Peabody too heavily;)

Davin Eastley 4 years ago

Heh, no Peabody here, Coley. 🙂

Coley 4 years ago

Won’t be any Peabody anywhere shortly, or other coal related stocks, the tide has turned, yet I feel wee bit guilty at king coals demise, given it gave me a canny twenty years:) But times change.

Davin Eastley 4 years ago

Well, there are different types of coal. Thermal and metallurgical with different grades (sulphur content, ash content, moisture content, energy density etc). China has grade restrictions on imports. Seaborne thermal market is hurting. But then there’s domestic coal trade in various domestic markets that are quite profitable (see Wood Mackenzie analysis for more on that. Turkey, Vietnam, South Africa, etc.) Tide is turning to a degree on Aussie thermal though, and sure, especially seaborne exports to China. But we continue to need metallurgical coal for steel production regardless. That market has been thrashed about of late though like the iron ore market but it looks like rebalancing should occur soon, if my analysis holds true. 🙂 Cheers!

Davin Eastley 4 years ago

Old king coal sure has been a resilient warrior!

wideEyedPupil 3 years ago

yeah, the big question is: why does Old King Coal want to rape and bludgeon our children in a needless war? can’t he retire from the battle gracefully with all that wealth amassed predicated on lies and deception for the last three decades?

wideEyedPupil 3 years ago

there are various Green Steel technologies including liquid anode that obviate the need for coking coal. researchers have suggested that if the switch was made to green steel, the cost of it would be lower than that of current production method.

wideEyedPupil 4 years ago

you have such moral clarity in your argument, not. a ‘tax-break’ is what a rich person gets and ‘hand-out’ is what a poor person gets is that it? we just need to align our prejudices correctly, right?

Davin Eastley 4 years ago

Philosophical distinction is present between a tax break and a subsidy.

Ok, so where is the subsidy? Clearly with person Z, as the hand-out is based on taxes from X and Y. Y gets a tax-break and keeps more of their money. Person X is just regularly taxed – no subsidy, no tax break.

Does that make it clearer?

wideEyedPupil 3 years ago

PAYE tax has nothing to do with subsidies. IEA and World Bank call them subsidies. Any money the government provides to companies/corporations on a sustained basis are subsidies. Somethings are worth subsidising because they have great social benefits and it’s not worth the state doing it for itself (nationalising an industry or service).

Subsidising catastrophic climate change is not a social good. It’s not an environmental good. It’s bad around. We already have a fair bit of catastrophy locked in from past FF use and nobody can be sure how many tipping climatic points we have crossed the threshold for already.

Perhaps you are a climate change denier like so many other ‘libertarians’ (AKAS selfish, ignorant jerks)

Miles Harding 4 years ago

There may be more than a grain of truth here. There are an increasing number of renegade economists that voice their concerns about the current system. Principally, these concerns are around limits and externalities, most of which are conveniently ignored by the generators and coal producers.

Nate Hagens observes that the economist’s assumption that the environment is a subset of the economy is fundamentally wrong and the reverse is true. Chris Martensen sees the limits of the debt fuelled system we are living in at present. Both are in agreement with the general observation that we are very near the limits of the earth system and that growth, as we know it, is effectively over. It is less than 1 minute to twelve for Albert Bartlett’s jar of bacteria.

The evidence for this is becoming abundantly clear; No matter whether the stimulus is rampant money printing or zero interest rates, the economy refuses to fire on all of its cylinders and continue to grow according to the exponential plan.

It is my contention that any economist that still thinks that indefinite exponential expansion is possible doesn’t know what they are talking about. Further, the entire public narrative supports this open-ended world view, so almost all of society needs to be educated about limits.

It is my observation that our dinosaur era economists will do everything the can to prolong the myth of eternal exponential growth, doing things akin to madness. The longer this continues, the more severe will be the inevitable correction as the biophysical limits of the ecosystem assert themselves and we are forced onto sustainable path.

In short, we desperately need a new economic system and that system will not look at all like the one we have. I am certain that greed and self-interest will have no part in it, or the present situation will be repeated.

Coley 4 years ago

In short, live within our means, when it’s realised we haven’t been doing so, who’s going to suffer? The 1%,or the rest of us?